As a small business owner in the UK, you know that every penny counts. That’s why it’s essential to have a solid understanding of tax planning and how it can benefit your business. With the help of Ralph Hearn, partner at Wellers, we have put together some valuable tips for small businesses on how to navigate the complex world of taxes and make the most out of your hard-earned money.
Corporation Tax is one of the biggest expenses for small businesses. It is a tax levied on the profits of limited companies and can significantly impact your bottom line. The current Corporation Tax rate in the UK is 19%, but it is set to decrease to 17% in 2020. This is good news for small businesses as it means more money in your pocket. However, it’s essential to plan ahead and take advantage of any available tax reliefs and allowances.
Ralph Hearn advises small business owners to take advantage of the Annual Investment Allowance (AIA). This allowance allows businesses to claim 100% tax relief on qualifying capital expenditure, up to a limit of £200,000 per year. This means that if you invest in equipment, machinery, or other assets for your business, you can deduct the full cost from your profits before calculating your Corporation Tax. It’s a great way to reduce your tax bill and invest in your business’s growth.
Another way to reduce your Corporation Tax is by claiming Research and Development (R&D) tax credits. These credits are available to companies that invest in research and development activities to advance their products, processes, or services. The tax credit is worth up to 230% of qualifying R&D expenditure, which can result in significant tax savings for your business. Many small businesses are unaware of this tax relief, so it’s crucial to seek professional advice to determine if you are eligible.
Business rates are another significant expense for small businesses, and they can vary considerably depending on your location. However, there are ways to reduce your business rates bill. For example, if you have a small business property with a rateable value of less than £15,000, you may be eligible for Small Business Rate Relief. This relief can reduce your rates bill by up to 100%. You can also apply for a business rates review to ensure that your property’s rateable value is accurate and not overvalued, which can result in a lower rates bill.
National Insurance (NI) is another cost that can add up for small businesses, especially if you have employees. As an employer, you are responsible for paying Class 1 NI contributions for your employees, and it’s essential to understand how these contributions are calculated. Ralph Hearn advises small business owners to take advantage of the Employment Allowance, which can reduce your Class 1 NI contributions by up to £3,000 per year. This allowance is available to most employers, and it’s a great way to save money and invest in your business.
In addition to these tax planning tips, Ralph Hearn also stresses the importance of keeping accurate records and seeking professional advice. As a small business owner, you have many responsibilities, and it can be challenging to keep track of all your financial transactions. However, it’s crucial to have a record of all your income and expenses to ensure that your tax returns are accurate and to avoid any penalties from HM Revenue and Customs (HMRC). Seeking professional advice from a qualified accountant can also help you identify any potential tax savings and ensure that you are compliant with all tax laws and regulations.
In conclusion, tax planning is an essential aspect of running a successful small business. By taking advantage of available tax reliefs and allowances, you can reduce your tax bill and invest in your business’s growth. Make sure to keep accurate records and seek professional advice to ensure that you are taking advantage of all available tax-saving opportunities. With the help of Ralph Hearn and Wellers, you can navigate the complex world of taxes and set your small business up for success.
